Car financing like most fields has its own terminology and lingo that you’re going to need to learn in order to follow what’s happening when you’re negotiating on your next car loan. Worry not, this article will serve as a glossary for all the important car finance terms you need to remember in Hagersville.
Principle & Interest
A loan is made up of two parts, the actual money you are being lent, and the money that the lender is making off of this transaction. Principle amount, and Interest. The principal amount, or simply principle, is the actual amount of money in the loan, this is the money you receive after negotiations are over and the amount you have to pay back.
Interest is a little bit more complicated, interest is a percentage amount of money that you’ll pay back on top of the principal amount. For an overly simple example, let’s say you take out a loan worth $1000 with an interest rate of 5%. The money you’d pay back at the end would be $1050, the principle plus the interest.
It’s more complicated than that in reality because interest is usually calculated on a monthly payment basis but that’s the very basic idea.
Maturity
In the context of a loan, maturity refers to how long the loan will be paid off for. Specifically, the maturity date is the date that the loan will be paid off in full. Loans are generally given in terms of 12 months: 12, 24, 48, 60 are common loan terms.
APR
Interest is charged on a month to month basis, however another way interest is displayed is annually. The APR or Annual Percentage Rate represents the total percentage of interest paid in a year. It’s a good way to compare loans, because it gives a clearer understanding of how much will be paid.
Amortization
When you start paying back a loan, some of the loan will be applied to the principal amount, and most will be applied to the interest. Since interest is calculated as a percentage of the principal amount, the more that is paid into the principal, the less interest there will be, this process is called amortization and it happens over the course of a loan’s lifespan.
Default
In the context of a loan, defaulting is really bad. Defaulting on a loan essentially means that you have failed to meet your monthly loan repayments agreed in the initial contract. Generally a loan agreement will have rules that dictate what happens next, for a car loan this usually means repossessing the car.